If you spend any time watching television, you are likely bombarded with advertisements for websites telling you how to use Credit Karma and other credit reporting services to check your credit score and your credit report. Like most commercials, you probably fast forward through it without a second thought. But these commercials may be a bit more important than the latest flash sale at a clothing store. The truth is that your credit score is critical to many aspects of your life, and checking up on it regularly should be routine for any business owner. We’ll show you here how to use Credit Karma and how to make the best out of this tool.
What is a Credit Score and Why Should You Care About It?
But first things first: a credit score is like a grade that says a lot about your credit risk. Credit risk is the likelihood for a person (or entity) to not meet the conditions of a debt (otherwise known as defaulting on debt). Defaulting on any debt will obviously have major consequences for the person defaulting, but it can also be a pain for the entity providing the loan. This is why those with a poor credit score are going to have a tougher time leasing a car, buying a home, or getting any sort of loan. For business owners, a low credit score could mean rejections or poor rates when trying to lease an office or while applying for business loans.
Learn here more about the benefits of a good credit score.
So How Do I Find Out My Credit Score?
Now that you know the importance of good credit, you probably want to know your credit score (and you probably don’t want to spend a lot of money to find out). Your credit score is typically determined by one of three main credit reporting agencies in the U.S.: Equifax, Experian, or TransUnion. These three credit agencies do require a monthly subscription fee (usually close to 20 dollars), but thankfully they each offer one free credit report to consumers per year. If you really want to see the differences in the reports, you can request all three credit reports at the same time. However, for most people, it is recommended to spread out the credit reports throughout the year to get a better idea of how your credit score is changing over time. Check here how to get your free credit report from any of these agencies.
The problem with using the main credit agencies is that you may need more than 3 credit reports a year to accurately get an idea of how certain events and actions are affecting your credit score. While a 20 dollar monthly subscription may seem reasonable, it certainly would be nice if there was a way to regularly check your credit score for free. Thankfully for you, there is, and it is all thanks to Credit Karma.
What is Credit Karma?
Credit Karma is a financial management website that provides a ton of free benefits to its users. Credit Karma gives users a credit score and a credit report on a weekly basis, and also uses data analytics and financial models to determine the best credit cards, business loans and other financial opportunities for the user’s personal needs. Credit Karma offers additional services like credit monitoring that tells you when your credit score changes dramatically (which can help spot instances of identity theft), financial calculators and educational articles on how to manage your finances. Finally, you’ll find a collection of user reviews on business loans, credit cars, car payments, and more. And since Credit Karma gets paid by businesses when users take a credit card or loan based on Credit Karma’s financial recommendations, all of the services offered on this website are completely free of charge. Let’s see now how to use Credit Karma so you can take advantage of all the benefits mentioned above.
How to Use Credit Karma?
Fortunately, you do not need to spend hours trying to figure out how to use Credit Karma. Just visit their website: all you will need to sign up is a valid email address and some personal information including your full name, address, and last 4 digits of your social security number. Credit Karma will have you quickly confirm your identity by answering security questions and then you will be all set. Once your account is created Credit Karma will quickly pull credit reports from TransUnion and Equifax and will pull up a screen that looks like this:
From here you can take a look at your account balances (including all of your credit cards, business loans, mortgages, auto loans, student loans, etc.) and recommendations for credit cards and other loans you are most likely to be approved for based on your credit score. You can also click either score to see the factors impacting it, which you should certainly do if you want to maintain or increase your credit score.
As you can see, you thankfully do not need a lot of time to learn how to use Credit Karma. Be sure to check your credit score every week or so to see any changes. Credit Karma will also typically email you frequently notifying you that your new score is available, so make sure those emails don’t go into your spam folder!
What Your Credit Score Means
Another important aspect of learning how to use Credit Karma efficiently is knowing what your credit score means and how it is calculated. Each credit bureau has a slightly different way of calculating scores, but they all are based on a standardized scoring system provided by credit modeling company VantageScore. The VantageScore model will give you a score between 300-850, which can be broken down into the following ranges:
What Goes Into Your Credit Score
Knowing your score is crucial, but the great feature of Credit Karma is that it allows you to know what actually goes into your credit score. There are several factors that impact your credit score and not every factor is measured equally. With Credit Karma you can easily visualize how each credit factor impacts your credit score (organized from high to low impact), so you can take the measurements to improve those areas you consider. Below you’ll find a breakdown of these factors:
- Credit card use- This refers to the percentage of credit used on your credit card. Leaving a balance on your credit card close to your credit limit will have a negative impact on your credit score. Typically your credit card balance should never be more than 30% of your credit limit. If you struggle to maintain that, you can try asking your financial institution to raise your credit limit.
- Payment history- The most influential factor of your credit score is how often you make payments on credit cards or loans on time. It is extremely important to make all payments on time, and a failure to do so could have very negative consequences on your credit score.
- Derogatory marks- These are negative, long-lasting indications that mean you didn’t pay back a loan as agreed. Late payments, collections, and bankruptcy will have a high and negative impact on your credit score. Also, a large number of debts could negatively influence your credit score. Again, make sure to pay off your debts in a timely manner, and consider refinancing to get better rates (Credit Karma will notify you when these opportunities arise!).
- Credit age- This refers to the length of time you have had accounts open, and while it doesn’t have such as high impact as the three previous factors, it will also have an effect on your credit score. In general, older accounts will lead to a higher credit score.
- Total accounts- The number and variety of credit you have. A variety of credit accounts (car loans, credit cards, mortgages, etc.) will lead to a higher credit score.
- Hard inquiries- Hard inquiries are the least influential factor, but they still can have an impact on your credit score. Most credit inquiries happen when you try to open new accounts like when applying for a mortgage, car loan, or business loan. The key is to not open multiple accounts in a short period of time, as that will lead to many credit inquiries and can lower your credit score.
For a more in-depth look at the different factors of credit and how they can affect your credit score, read this complete post about how to read your credit report.
Credit Karma for Business: Does It Exist?
There is not a Credit Karma platform specifically designed for business. However, Nav is a similar tool that pulls your business credit score from the 3 main credit bureaus (Dun & Bradstreet, Equifax Business and Experian Business), and best of all, is free.
- What is a business credit score? A business credit score is a concept similar to a personal credit score but applied to business. Likewise, the higher your business credit score is, the higher your company’s likelihood to pay off debt on time. This is crucial when applying for business credit cards or business loans,
- What is a good credit score for business? Whereas your personal credit is based on a 300-to-850 scale, business credit scores are often based on a 1-to-100 scale. A score of 75 or higher is considered excellent.
- How do I check my business credit score? You can apply directly to the 3 main credit bureaus to receive a complete business credit report.
- Can I check my business credit score for free? You’re entitled to get one FREE credit report every 12 months from each of the 3 credit bureaus. If you need to check it more often, you’ll have to pay a monthly fee. You can access the prices here. Alternatively, you can use Nav. After submitting your basic information, you’ll have access to your business credit score at any time and at no cost.
We hope that this article has shown you how to use Credit Karma and the importance of keeping track of your credit score. We recommend checking it as often as possible in order to stay on top of your credit score at all times. Remember that a healthy credit score will improve your chances to get approved for a loan, and with better terms and rates. If you are ready to take that step, consider applying for a Camino Financial business loan. You may have worked hard to keep your credit score as high as possible and now are worried about how your application will impact. No worries! Your online application will not affect your credit score, and you will be notified immediately if you are prequalified for financing.